Federal funds comprised 44% of the total state budget in fiscal year 2020 – the last not impacted by COVID-19. For the current 2022 fiscal year, 47.2% of the total funds appropriated by the Mississippi Legislature came from Uncle Sam.
For the current fiscal year, the state has a state-support budget of $6.7 billion and an overall budget of $23.3 billion. The state-support budget refers to the agencies that are funded through general taxes, such as on retail items and on income, and on a few other items. The overall $23.25 billion budget consists of those aforementioned state-support items, and other items, such as the massive amount of federal funds directed to the state for the Mississippi Legislature to appropriate.
But wait, there’s more. The budget also consists of so-called special funds. In short, there are more layers to the state budget than there are to the attire of an Ivy League English professor on a winter’s day.
An argument can be made that perhaps those layers are not that important. But for those who believe in the importance of transparency or of having more than a casual understanding of government, this primer will continue.
While legislators will not return for regular session until January, work on developing a budget for the next fiscal year, beginning July 1, already has started. Before the session begins, both leaders who make up Legislative Budget Committee and Gov. Tate Reeves will offer budget proposals that can be considered by the Legislature when it convenes in January.
The part of the state budget that will receive the most attention and where the Legislature has the most discretion in appropriating funds is the so-called state-support budget.
For the current year, this budget consists of $5.8 billion in general funds and another $881 million in other state-support funds. The general fund revenue is derived primarily from taxes on income and retail items. The two categories account for about 84% of the general fund revenue used to fund such items as education, including the salaries for most teachers, state law enforcement, the state share for Medicaid, higher education and many other services.
Other revenue included in the $5.8 billion general fund are the so-called sin taxes. Casino gambling tax revenue makes up 2% of the total general funds. Taxes on tobacco, liquor, beer and wine make up a combined 4.5% of the total.
The tax on insurance premiums accounts for a surprising 5.6% of the total general fund.
Another about $880 million is added to the general fund to make the state-support budget. That $880 million includes an additional 1-cent sales tax increase enacted in 1992 for education giving the state a total sales tax of 7%. Another large source of state-support funding is the about $100 million Mississippi receives annually from the 1990s settlement of a lawsuit filed by then-Attorney General Mike Moore to recoup government funds spent treating smoking-related illnesses.
Mississippi received about $11 billion in federal funds for the current year for the state Legislature to appropriate to multiple agencies. This includes federal funds appropriated to pay the cost of Medicaid, for the Department of Health, for education programs, for various social welfare programs and for multiple others. The Legislature is limited in how the federal funds can be spent and often state matching funds are required to draw down the federal dollars.
The federal dollars are higher this year because of COVID-19. But as stated earlier, federal funds consistently account for about 45% of total state spending.
The remainder of the budget consists of special funds. These are taxes and fees levied to fund specific agencies. The largest of these special fund agencies is the Department of Transportation that is funded primarily — at least the state’s part — from the 18.4 cents per gallon tax on motor fuel. There are many smaller special fund agencies, such as the Board of Accountancy that is funded through a fee on — guess who? Multiple other professions also pay a fee to operate their regulatory boards.
Laws are in place to direct those special taxes and fees to the agencies they support so the Legislature has little discretion in how those funds are spent. But during economic hard times when state general funds decline, legislators have been known to change those laws to take money from those special funds to help make up for shortfalls in the general fund agencies. Legislators can change the laws to do that. After all, they do make the laws.
There are multiple other nuances that make up the budget for the state. But that is an advanced level budgeting that many legislators do not even understand.